Ritesh Agarwal in talks to buy back shares worth USD 1.5 billion

Jul 8, 2019 by The Passage Team

Ritesh Agarwal, founder of Oyo Hotels is looking to buy back shares from his early investors Sequoia Capital and Lightspeed Venture Partners to gain more ownership in the company, three people told Economic Times.

Currently, Agarwal holds 10% stake in his company, which, once his buy back endeavour goes through, his share will go up to 30% in the company. This move, though uncommon among young-age startups, will provide Agarwal to pledge his shares in the process of venture debt funding, which he has been looking to raise for some time now.

The 26-year-old founder has been in talks with financial institutions and banks in India, Japan and Europe as well, to shore up USD 2 billion in secured debt, sources close to the matter said on condition of anonymity. According to the sources, Oyo will be valued at around USD 10 billion in a mix of secondary and primary transactions.

“While Agarwal will buy USD 1.5 billion worth of shares from Sequoia and Lightspeed, another USD 500 million will come in the form of primary capital. The primary part of the deal may see existing investors also pitch in,” said a person privy to the details. The USD 500 million in primary capital will go into the company’s coffers, he added.

Once the buy back of shares goes through as planned, Agarwal, along with the management, will emerge as the second-largest shareholder. SoftBank Vision Fund, which owns almost 48% of the company is the majority shareholder in Oyo. People in the know said a few months ago, SoftBank had bought back some shares from Greenoaks as part of a secondary transaction. This led to Oyo’s founder starting discussions to raise promoter and management control in the company, said another person familiar with the development.

As per clauses drawn up by Oyo, the Japanese group cannot increase its ownership beyond 49.9% without receiving approvals from Agarwal, Sequoia, Lightspeed and Greenoaks Capital.

Greenoaks’ stake of 5.76% may have been pared to about 3% post SoftBank’s purchase. A spokesperson for Greenoaks told ET that the company does not comment on “rumour or speculation”.

Once Agarwal’s repurchase of shares is successful, Sequoia and Lightspeed will partially liquidate their stakes in the company and take home huge returns from their early bet in the company. Lightspeed owns 13.4% of Oyo and has invested Rs 158 crore, while Sequoia has ploughed in Rs 165 crore and holds a 10.24% stake, as per Paper.vc, a business signals platform.

The two funds also own stakes in Oyo China, which is separate from Oyo Global, which houses the India business. They had invested separately in the China entity last year.

The Passage Team

The Passage is committed to creating in-depth content over technology industry across Asia with a focus on emerging startups in the technology, healthcare, education, food, tech, travel & mobility segments.